Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the iShares Ultrashort Duration Bond Fund, 47461-47467 [2012-19415]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 153 (Wednesday, August 8, 2012)]
[Notices]
[Pages 47461-47467]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19415]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67583; File No. SR-BATS-2012-033]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To List and Trade Shares of the iShares 
Ultrashort Duration Bond Fund

August 2, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on July 27, 2012, BATS Exchange, Inc. (``Exchange'' or ``BATS'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been substantially prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to list and trade shares of the iShares 
Ultrashort Duration Bond Fund (``Fund'') of the iShares U.S. ETF Trust 
(``Trust'') under BATS Rule 14.11(i) (``Managed Fund Shares''). The 
shares of the Fund are collectively referred to herein as the 
``Shares.'' The text of the proposed rule addition is available at the 
Exchange's Web site at https://www.batstrading.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under BATS Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Fund will be an actively managed ETF. The 
Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on June 21, 2011. The Trust is registered with 
the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\4\
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    \3\ The Commission approved BATS Rule 14.11(i) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018). Although the Fund would be 
the first actively-managed exchange-traded fund (``ETF'') listed on 
the Exchange, the Commission has previously approved the listing and 
trading of a number of actively managed ETFs on NYSE Arca, Inc. 
pursuant to Rule 8.600 of that exchange. See, e.g., Securities 
Exchange Act Release Nos. 64550 (May 26, 2011), 76 FR 32005 (June 2, 
2011) (SR-NYSEArca-2011-11) (order approving listing and trading of 
two actively managed ETFs, including Guggenheim Enhanced Ultra-Short 
Bond ETF); 60981 (November 10, 2009), 74 FR 59594 (November 18, 
2009) (SR-NYSEArca-2009-79) (order approving listing and trading of 
five actively managed ETFs, including PIMCO Enhanced Short Maturity 
Strategy Fund). The Exchange believes the proposed rule change 
raises no significant issues not previously addressed in those prior 
Commission orders.
    \4\ See Registration Statement on Form N-1A for the Trust, dated 
March 5, 2012 (File Nos. 333-179904 and 811-22649). The descriptions 
of the Fund and the Shares contained herein are based, in part, on 
information in the Registration Statement. The Commission has issued 
an order granting certain exemptive relief to the Company under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') 
(``Exemptive Order''). See Investment Company Act Release No. 29571 
(January 24, 2011) (File No. 812-13601).
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    BlackRock Fund Advisors is the investment adviser (``BFA'' or 
``Adviser'') to the Fund.\5\ BlackRock Financial Management, Inc. 
serves as sub-adviser for the Fund (``Sub-Adviser'').\6\ State Street 
Bank and Trust Company is the administrator, custodian, and transfer 
agent for the Trust. BlackRock Investments, LLC (``Distributor'') 
serves as the distributor for the Trust.
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    \5\ BlackRock Fund Advisors is an indirect wholly owned 
subsidiary of BlackRock, Inc.
    \6\ The Adviser manages the Fund's investments and its business 
operations subject to the oversight of the Board of Trustees of the 
Trust (``Board''). While BFA is ultimately responsible for the 
management of the Fund, it is able to draw upon the trading, 
research, and expertise of its asset management affiliates for 
portfolio decisions and management with respect to portfolio 
securities. The Adviser also has ongoing oversight responsibility. 
The Sub-Adviser, subject to the supervision and oversight of the 
Adviser and the Board, is responsible for day-to-day management of 
the Fund and, as such, typically makes all decisions with respect to 
portfolio holdings.
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    BATS Rule 14.11(i)(7) provides that, if the investment adviser to 
the investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\7\ In addition, Rule

[[Page 47462]]

14.11(i)(7) further requires that personnel who make decisions on the 
investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the applicable investment company 
portfolio. Rule 14.11(i)(7) is similar to BATS Rule 14.11(b)(5)(A)(i); 
however, Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser and 
Sub-Adviser are both affiliated with multiple broker-dealers and have 
both implemented ``fire walls'' with respect to such broker-dealers 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio. In addition, Adviser and Sub-Adviser 
personnel who make decisions regarding the Fund's portfolio are subject 
to procedures designed to prevent the use and dissemination of 
material, non-public information regarding the Fund's portfolio. In the 
event that (a) the Adviser or the Sub-Adviser becomes newly affiliated 
with a broker-dealer, or (b) any new adviser or sub-adviser becomes 
affiliated with a broker-dealer, they will implement a fire wall with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio, and will be 
subject to procedures designed to prevent the use and dissemination of 
material, non-public information regarding such portfolio.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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iShares Ultrashort Duration Bond Fund
    According to the Registration Statement, the Fund will seek to 
maximize current income. To achieve its objective, the Fund will 
invest, under normal circumstances,\8\ at least 80% of its net assets 
in a diversified portfolio of U.S. dollar-denominated investment grade 
fixed income securities (``Fixed Income Securities''). The Fund will 
not be a money market fund and thus will not seek to maintain a stable 
net asset value of $1.00 per Share. In the absence of normal 
circumstances, the Fund may temporarily depart from its normal 
investment process, provided that such departure is, in the opinion of 
the portfolio management team of the Fund, consistent with the Fund's 
investment objective and in the best interest of the Fund. For example, 
the Fund may hold a higher than normal proportion of its assets in cash 
in response to adverse market, economic, or political conditions.
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    \8\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of adverse market, economic, political, or 
other conditions, including extreme volatility or trading halts in 
the fixed income markets or the financial markets generally; 
operational issues causing dissemination of inaccurate market 
information; or force majeure type events such as systems failure, 
natural or man-made disaster, act of God, armed conflict, act of 
terrorism, riot, or labor disruption, or any similar intervening 
circumstance.
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    The Fund will hold Fixed Income Securities of at least 13 non-
affiliated issuers. The Fund will not purchase the securities of 
issuers conducting their principal business activity in the same 
industry if, immediately after the purchase and as a result thereof, 
the value of the Fund's investments in that industry would equal or 
exceed 25% of the current value of the Fund's total assets, provided 
that this restriction does not limit the Fund's: (i) Investments in 
securities of other investment companies; (ii) investments in 
securities issued or guaranteed by the U.S. government, its agencies or 
instrumentalities; or (iii) investments in repurchase agreements 
collateralized by U.S. government securities.\9\
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    \9\ See Form N-1A, Item 9. The Commission has taken the position 
that a fund is concentrated if it invests in more than 25% of the 
value of its total assets in any one industry. See, e.g., Investment 
Company Act Release No. 9011 (October 30, 1975), 40 FR 54241 
(November 21, 1975).
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    The Fund intends to qualify each year as a regulated investment 
company (``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\10\ The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification, and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M. The Subchapter M diversification tests generally require that (1) 
the Fund invest no more than 25% of its total assets in securities 
(other than securities of the U.S. government or other RICs) of any one 
issuer or two or more issuers that are controlled by the Fund and that 
are engaged in the same, similar, or related trades or businesses, and 
(2) at least 50% of the Fund's total assets consist of cash and cash 
items, U.S. government securities, securities of other RICs, and other 
securities, with investments in such other securities limited in 
respect of any one issuer to an amount not greater than 5% of the value 
of the Fund's total assets and not greater than 10% of the outstanding 
voting securities of such issuer. The Fund will not invest in non-U.S. 
equity securities.
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    \10\ 26 U.S.C. 851.
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Fixed Income Securities
    The Fund intends to achieve its investment objective by investing, 
under normal circumstances, at least 80% of its net assets in a 
diversified portfolio of U.S. dollar-denominated investment grade Fixed 
Income Securities, rated a minimum of BBB- or higher by Standard & 
Poor's Financial Services LLC and/or Fitch Inc., or Baa3 or higher by 
Moody's Investors Service, Inc., or, if unrated, determined by the 
portfolio management team of the Fund to be of equivalent quality.
    Fixed Income Securities will primarily include fixed and floating 
rate debt securities of varying maturities, such as corporate \11\ and 
government bonds, agency securities,\12\ instruments of non-U.S. 
issuers, municipal bonds, money market instruments,\13\ and

[[Page 47463]]

investment companies that invest in such Fixed Income Securities. The 
Adviser or its affiliates may advise the money market funds and 
investment companies in which the Fund may invest, in accordance with 
the 1940 Act. The Fund may invest up to 5% of its net assets in Fixed 
Income Securities and instruments of issuers that are domiciled in 
emerging market countries.
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    \11\ While the Fund is permitted to invest without restriction 
in corporate bonds, the Adviser expects that, under normal market 
conditions, the Fund will generally seek to invest in corporate bond 
issuances that have at least $100 million par amount outstanding in 
developed countries and at least $200 million par amount outstanding 
in emerging market countries.
    \12\ While the Fund is permitted to invest without restriction 
in agency securities, the Adviser expects that, under normal market 
conditions, the Fund will generally not seek to invest more than 50% 
of the Fund's assets in agency securities. ``Agency securities'' for 
these purposes generally includes securities issued by the following 
entities: Government National Mortgage Association (Ginnie Mae), 
Federal National Mortgage Association (Fannie Mae), Federal Home 
Loan Banks (FHLBanks), Federal Home Loan Mortgage Corporation 
(Freddie Mac), Farm Credit System (FCS) Farm Credit Banks (FCBanks), 
Student Loan Marketing Association (Sallie Mae), Resolution Funding 
Corporation (REFCORP), Financing Corporation (FICO), and the Farm 
Credit System (FCS) Financial Assistance Corporation (FAC). Agency 
securities can include, but are not limited to, mortgage-backed 
securities.
    \13\ While the Fund will invest at least 80% of its net assets 
in a diversified portfolio of U.S. dollar-denominated investment 
grade Fixed Income Securities, the Adviser expects that, under 
normal circumstances, the Fund also intends to invest in money 
market securities (as described below) in a manner consistent with 
its investment objective in order to help manage cash flows in and 
out of the Fund, such as in connection with payment of dividends or 
expenses, and to satisfy margin requirements, to provide collateral 
or to otherwise back investments in derivative instruments. For 
these purposes, money market securities include: short-term, high-
quality obligations issued or guaranteed by the U.S. Treasury or the 
agencies or instrumentalities of the U.S. government; short-term, 
high-quality securities issued or guaranteed by non-U.S. 
governments, agencies and instrumentalities; repurchase agreements 
backed by U.S. government securities; money market mutual funds; 
commercial paper; and deposits and other obligations of U.S. and 
non-U.S. banks and financial institutions. All money market 
securities acquired by the Fund will be rated investment grade. The 
Fund does not intend to invest in any unrated money market 
securities. However, it may do so, to a limited extent, such as 
where a rated money market security becomes unrated, if such money 
market security is determined by the Adviser or the Sub-Adviser to 
be of comparable quality.
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    The Fund will invest in asset-backed and mortgage-backed Fixed 
Income Securities.\14\ Asset-backed securities are fixed-income 
securities that are backed by a pool of assets, usually loans such as 
installment sale contracts or credit card receivables. Mortgage-backed 
securities are asset-backed securities based on a particular type of 
asset, a mortgage. There is a wide variety of mortgage-backed 
securities involving commercial or residential, fixed-rate or 
adjustable rate mortgages, and mortgages issued by banks or government 
agencies.\15\ Most transactions in fixed-rate mortgage pass-through 
securities occur through standardized contracts for future delivery in 
which the exact mortgage pools to be delivered are not specified until 
a few days prior to settlement, known as TBA transactions. The Fund may 
enter into such contracts on a regular basis. The Fund, pending 
settlement of such contracts, will invest the relevant assets in high-
quality, liquid short-term instruments, including shares of money 
market funds affiliated with BFA. Collateralized mortgage obligations 
(``CMOs'') are Fixed Income Securities that are backed by cash flows 
from pools of mortgages. CMOs may have multiple classes with different 
payment rights and protections.
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    \14\ The Fund has not established a fixed limit to the amount of 
asset-backed and/or mortgage-backed debt securities in which it will 
invest, which is consistent with at least one analogous fund. See, 
e.g., PIMCO Enhanced Short Maturity Strategy Fund (``MINT Fund'') as 
described in Amendment 1 to SR-NYSEArca-2009-79 (November 10, 2009) 
and approved by Securities Exchange Act Release No. 60981 (November 
10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79). As 
noted above, at least 80% of the Fund's net assets will be, under 
normal circumstances, invested in U.S. dollar-denominated investment 
grade Fixed Income Securities, including asset-backed and/or 
mortgage-backed debt securities. Neither high-yield asset-backed 
securities nor high-yield mortgage-backed securities are included in 
the Fund's principal investment strategies. The liquidity of a 
security, especially in the case of asset-backed and mortgage-backed 
debt securities, is a substantial factor in the Fund's security 
selection process.
    \15\ See note 12, supra.
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    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. Under 
normal circumstances, the effective duration of the Fund's portfolio is 
expected to be one year or less, as calculated by the Adviser.\16\
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    \16\ Effective duration is a measure of the potential 
responsiveness of a bond or portfolio price to small parallel shifts 
in interest rates. When measured across a portfolio, the effective 
duration of a portfolio is equivalent to the average portfolio 
duration.
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Other Portfolio Holdings
    In addition to money market securities in which the Fund invests as 
part of its principal investment strategies, as described above, the 
Fund may invest in money market securities in a manner consistent with 
its investment objective in order to help manage cash flows in and out 
of the Fund, such as in connection with payment of dividends or 
expenses, and to satisfy margin requirements, to provide collateral or 
to otherwise back investments in derivative instruments.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities.\17\ The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid securities. Illiquid securities include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
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    \17\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); and Investment Company Act Release No. 17452 
(April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A 
under the Securities Act of 1933).
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    Pursuant to the Exemptive Order, the Fund will not invest in swap 
agreements, futures contracts, or option contracts. The Fund will also 
not invest in convertible securities or preferred stock, but may invest 
in currency forwards for hedging against foreign currency exchange rate 
risk and/or trade settlement purposes.
The Shares
    The Fund will issue and redeem Shares on a continuous basis at the 
net asset value per share (``NAV'') \18\ only in large blocks of a 
specified number of Shares or multiples thereof (``Creation Units'') in 
transactions with authorized participants who have entered into 
agreements with the Distributor. The Fund currently anticipates that a 
Creation Unit will consist of 100,000 Shares, though this number may 
change from time to time, including prior to listing of the Fund. The 
exact number of Shares that will comprise a Creation Unit will be 
disclosed in the Registration Statement of the Fund. Once created, 
Shares of the Fund trade on the secondary market in amounts less than a 
Creation Unit.
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    \18\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange, generally 4:00 p.m. Eastern Time 
(``NAV Calculation Time''). NAV per Share is calculated by dividing 
the Fund's net assets by the number of Fund Shares outstanding. For 
more information regarding the valuation of Fund investments in 
calculating the Fund's NAV, see the Registration Statement.
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    The consideration for purchase of Creation Units of the Fund 
generally will consist of the in-kind deposit of a designated portfolio 
of securities (including any portion of such securities for which cash 
may be substituted) (i.e., ``Deposit Securities'') and the ``Cash 
Component'' computed as described below. Together, the Deposit 
Securities and the Cash Component constitute the ``Fund Deposit,'' 
which represents the minimum initial and subsequent investment amount 
for a Creation Unit of the Fund.
    The portfolio of securities required for purchase of a Creation 
Unit may not be identical to the portfolio of securities the Fund will 
deliver upon redemption of Fund shares. The Deposit Securities and Fund 
Securities (as defined below), as the case may be, in connection with a 
purchase or redemption of a Creation Unit, generally will correspond 
pro rata, to the extent practicable, to the securities held by the 
Fund.
    The Cash Component will be an amount equal to the difference 
between the NAV of the Shares (per Creation

[[Page 47464]]

Unit) and the ``Deposit Amount,'' which will be an amount equal to the 
market value of the Deposit Securities, and serve to compensate for any 
differences between the NAV per Creation Unit and the Deposit Amount. 
The Fund generally offers Creation Units partially for cash. BFA will 
make available through the National Securities Clearing Corporation 
(``NSCC'') on each business day, prior to the opening of business on 
the Exchange, the list of names and the required number or par value of 
each Deposit Security and the amount of the Cash Component to be 
included in the current Fund Deposit (based on information as of the 
end of the previous business day) for the Fund.
    The identity and number or par value of the Deposit Securities may 
change pursuant to changes in the composition of the Fund's portfolio 
as rebalancing adjustments and corporate action events occur from time 
to time. The composition of the Deposit Securities may also change in 
response to adjustments to the weighting or composition of the holdings 
of the Fund.
    The Fund reserves the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC'') or the clearing process through 
the NSCC.
    Except as noted below, all creation orders must be placed for one 
or more Creation Units and must be received by the Distributor in 
proper form no later than 4:00 p.m. Eastern Time, in each case on the 
date such order is placed in order for creation of Creation Units to be 
effected based on the NAV of Shares of the Fund as next determined on 
such date after receipt of the order in proper form. Orders requesting 
substitution of a ``cash in lieu'' amount generally must be received by 
the Distributor no later than 2:00 p.m. Eastern Time on the Settlement 
Date. The ``Settlement Date'' is generally the third business day after 
the transmittal date. On days when the Exchange or the bond markets 
close earlier than normal, the Fund may require orders to create or to 
redeem Creation Units to be placed earlier in the day.
    Fund Deposits must be delivered through the Federal Reserve System 
(for cash and government securities), through DTC (for corporate and 
municipal securities), or through a central depository account, such as 
with Euroclear or DTC, maintained by State Street or a sub-custodian 
(``Central Depository Account'') by an authorized participant. Any 
portion of a Fund Deposit that may not be delivered through the Federal 
Reserve System or DTC must be delivered through a Central Depository 
Account. The Fund Deposit transfer must be ordered by the authorized 
participant in a timely fashion so as to ensure the delivery of the 
requisite number of Deposit Securities to the account of the Fund by no 
later than 3:00 p.m. Eastern Time on the Settlement Date.
    A standard creation transaction fee will be imposed to offset the 
transfer and other transaction costs associated with the issuance of 
Creation Units.
    Shares of the Fund may be redeemed only in Creation Units at their 
NAV next determined after receipt of a redemption request in proper 
form by the Distributor and only on a business day. BFA will make 
available through the NSCC, prior to the opening of business on the 
Exchange on each business day, the designated portfolio of securities 
(including any portion of such securities for which cash may be 
substituted) that will be applicable (subject to possible amendment or 
correction) to redemption requests received in proper form on that day 
(``Fund Securities''). Fund Securities received on redemption may not 
be identical to Deposit Securities that are applicable to creations of 
Creation Units.
    Unless cash redemptions are available or specified for the Fund, 
the redemption proceeds for a Creation Unit generally will consist of a 
specified amount of cash, Fund Securities, plus additional cash in an 
amount equal to the difference between the NAV of the Shares being 
redeemed, as next determined after the receipt of a request in proper 
form, and the value of the specified amount of cash and Fund 
Securities, less a redemption transaction fee. The Fund generally 
redeems Creation Units partially for cash.
    A standard redemption transaction fee will be imposed to offset 
transfer and other transaction costs that may be incurred by the Fund.
    Redemption requests for Creation Units of the Fund must be 
submitted to the Distributor by or through an authorized participant no 
later than 4:00 p.m. Eastern Time on any business day in order to 
receive that day's NAV. The authorized participant must transmit the 
request for redemption in the form required by the Fund to the 
Distributor in accordance with procedures set forth in the Authorized 
Participant Agreement.
    Additional information regarding the Shares and the Fund, including 
investment strategies, risks, creation and redemption procedures, fees 
and expenses, portfolio holdings disclosure policies, distributions, 
taxes and reports to be distributed to beneficial owners of the Shares 
can be found in the Registration Statement or on the Web site for the 
Fund (www.iShares.com), as applicable.
Availability of Information
    The Fund's Web site, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The Web site will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (``Bid/Ask 
Price''),\19\ daily trading volume, and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. Daily trading 
volume information will be available in the financial section of 
newspapers, through subscription services such as Bloomberg, Thomson 
Reuters, and International Data Corporation, which can be accessed by 
authorized participants and other investors, as well as through other 
electronic services, including major public Web sites. On each business 
day, before commencement of trading in Shares during Regular Trading 
Hours \20\ on the Exchange, the Fund will disclose on its Web site the 
identities and quantities of the portfolio of securities and other 
assets (``Disclosed Portfolio'') held by the Fund that will form the 
basis for the Fund's calculation of NAV at the end of the business 
day.\21\ The Disclosed Portfolio will include, as applicable, the 
names, quantity, percentage weighting, and market value of Fixed Income 
Securities and other assets held by the Fund, and the characteristics 
of such assets. The Web

[[Page 47465]]

site and information will be publicly available at no charge.
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    \19\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \20\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \21\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T + 1''). 
Accordingly, the Fund will be able to disclose at the beginning of 
the business day the portfolio that will form the basis for the NAV 
calculation at the end of the business day.
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    In addition, for the Fund, an estimated value, defined in BATS Rule 
14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value will be based upon the current 
value for the components of the Disclosed Portfolio and will be updated 
and widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Regular Trading Hours.\22\ 
In addition, the quotations of certain of the Fund's holdings may not 
be updated during U.S. trading hours if such holdings do not trade in 
the United States or if updated prices cannot be ascertained.
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    \22\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
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    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and provide a 
close estimate of that value throughout the trading day.
    Intraday, executable price quotations on Fixed Income Securities 
and other assets are available from major broker-dealer firms. Such 
intraday price information is available through subscription services, 
such as Bloomberg, Thomson Reuters, and International Data Corporation, 
which can be accessed by authorized participants and other investors.
    Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
be published daily in the financial section of newspapers. Quotation 
and last-sale information for the Shares will be available on the 
facilities of the CTA.
Initial and Continued Listing
    The Shares will be subject to BATS Rule 14.11(i), which sets forth 
the initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 under the 
Act.\23\ A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \23\ See 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BATS Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments comprising the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. BATS will allow 
trading in the Shares from 8 a.m. until 5 p.m. Eastern Time. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BATS Rule 11.11(a), the 
minimum price variation for quoting and entry of orders in Managed Fund 
Shares traded on the Exchange is $0.01, with the exception of 
securities that are priced less than $1.00, for which the minimum price 
variation for order entry is $0.0001.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. The 
Exchange may obtain information via the Intermarket Surveillance Group 
(``ISG'') from other exchanges who are members or affiliates of the ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement.\24\ The Exchange prohibits the 
distribution of material, non-public information by its employees.
---------------------------------------------------------------------------

    \24\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BATS Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value is disseminated; (4) the risks involved 
in trading the Shares during the Pre-Opening \25\ and After Hours 
Trading Sessions \26\ when an updated Intraday Indicative Value will 
not be calculated or publicly disseminated; (5) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (6) trading information.
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    \25\ The Pre-Opening Session is from 8 a.m. to 9:30 a.m. Eastern 
Time.
    \26\ The After Hours Trading Session is from 4 p.m. to 5 p.m. 
Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site. In addition, the Information Circular will reference that the 
Trust is subject to various fees and expenses described in the Fund's 
Registration Statement.

[[Page 47466]]

2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\27\ in general, and Section 6(b)(5) of the Act,\28\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f.
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in BATS Rule 14.11(i). The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. If the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser to the investment adviser 
shall erect a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. The 
Adviser and Sub-Adviser are both affiliated with multiple broker-
dealers and have implemented ``fire walls'' with respect to such 
broker-dealers regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. The Exchange may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement.
    According to the Registration Statement, the Fund expects that it 
will have at least 80% of its assets invested in U.S. dollar-
denominated investment grade Fixed Income Securities. The Fund's 
exposure to any single industry will generally be limited to 25% of the 
Fund's assets. The Fund's investments will be consistent with the 
Fund's investment objective and will not be used to enhance leverage. 
The Fund also may invest its net assets in money market instruments at 
the discretion of the Adviser or Sub-Adviser. The Fund may invest up to 
5% of its net assets in Fixed Income Securities and instruments of 
issuers that are domiciled in emerging market countries. While the Fund 
is permitted to invest without restriction in corporate bonds, the 
Adviser expects that, under normal circumstances, the Fund will 
generally seek to invest in corporate bond issuances that have at least 
$100 million par amount outstanding in developed countries and at least 
$200 million par amount outstanding in emerging market countries. The 
Fund will not invest in non-U.S. equity securities.
    Additionally, the Fund may hold up to an aggregate amount of 15% of 
its net assets in illiquid securities (calculated at the time of 
investment), including Rule 144A securities. The Fund will monitor its 
portfolio liquidity on an ongoing basis to determine whether, in light 
of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid securities. Illiquid securities include securities subject 
to contractual or other restrictions on resale and other instruments 
that lack readily available markets as determined in accordance with 
Commission staff guidance.
    Pursuant to the Exemptive Order, the Fund will not invest in swap 
agreements, futures contracts, or option contracts. The Fund will also 
not invest in convertible securities or preferred stock, but may invest 
in currency forwards for hedging against foreign currency exchange rate 
risk and/or trade settlement purposes.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be disseminated by one or more major market data 
vendors at least every 15 seconds during Regular Trading Hours. On each 
business day, before commencement of trading in Shares during Regular 
Trading Hours, the Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. Pricing information will be available on 
the Fund's Web site including: (1) The prior business day's reported 
NAV, the Bid/Ask Price of the Fund, and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. Additionally, 
information regarding market price and trading of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last-sale information for the Shares will be available on the 
facilities of the CTA. The Web site for the Fund will include a form of 
the prospectus for the Fund and additional data relating to NAV and 
other applicable quantitative information. Trading in Shares of the 
Fund will be halted under the conditions specified in BATS Rule 11.18. 
Trading may also be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. Finally, trading in the Shares will be subject to BATS 
Rule 14.11(i)(4)(B)(iv), which sets forth circumstances under which 
Shares of the Fund may be halted. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the Intraday Indicative Value, the Disclosed Portfolio, and 
quotation and last-sale information for the Shares.
    Intraday, executable price quotations on Fixed Income Securities 
and other assets are available from major broker-dealer firms. Such 
intraday price information is available through subscription services, 
such as Bloomberg, Thomson Reuters, and International Data Corporation, 
which can be accessed by authorized participants and other investors.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a

[[Page 47467]]

comprehensive surveillance sharing agreement. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last-sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove the proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BATS-2012-033 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2012-033. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549, on official business days between 10:00 a.m. 
and 3:00 p.m. Copies of the filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BATS-2012-033 and should be 
submitted on or before August 29, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19415 Filed 8-7-12; 8:45 am]
BILLING CODE 8011-01-P